03. Sector coupling underpinned by major energy investments

At the same time, a number of short-term investments can help us emerge from the corona crisis.

We have the preconditions for producing a large amount of green electricity and biogas, and we have the technology to use it in a number of sectors.

For example, electricity produced by offshore wind farms can be used in heat pumps to replace oil heating boilers, it can be used in electric cars to replace petrol- and diesel driven cars, or – depending on future developments – it can be used for the production of alternative fuels such as hydrogen. The key word is “sector coupling”.

A national strategy for sector coupling

By means of sector coupling, different players in the energy system are linked more closely in order to create flexibility and cost-efficiency. This is typically done using cross-cutting and creative solutions.

It is, among other things, a question of using electricity from wind turbines for domestic heating (electrification through heat pumps), using waste heat in district heating supply, biogas from slurry and food waste in the production of hydrogen (Power-to-X).

Sector coupling will be crucial to achieving the 2030 and 2050 goals in a cost-efficient and adequate way. A national strategy for this area should therefore be defined. Among other things, the strategy should map out possible couplings, identify potentials and barriers and find solutions that can break down barriers.

For example, investments into storage capacity provide benefits across sectors – for example between electricity grids and heating systems – as pointed out by the Climate Partnership for Energy and Utilities. It should be a focal point that the regulation of different sectors must be consistent and underpin coupling.

The strategy could also include a number of initiatives to underpin flexible and intelligent power consumption, i.e. power consumption outside peak hours such as 17.00-20.00 CET, for example, automatic lighting in buildings, release of data and time-differentiated tariffs.

It is, however, important to FH that any initiatives should not be disproportionately expensive or disproportionately interfere with the everyday lives of workers, and low-paid workers in particular. The state should therefore ensure the regard for data security and consumer rights as well as social justice.

Electrification and other solutions will help us become independent from coal, oil and natural gas

It is already possible to point to areas where it would be suitable to promote the use of electricity, biogas and waste heat over coal, oil and natural gas.

FH proposes, as shown in box 5, a widespread scaling up of heat pumps, biogas and solar power solutions, increased use of waste heat, energy efficiency measures and the deployment of charging stations.

In households today, there are approximately 80,000 oil heating boilers and 375,000 gas furnaces, which should be replaced with heat pumps or district heating before 2030.

Among other things, this must be done by banning the installation of conventional burners and furnaces from 2022 and by introducing requirements for their replacement in connection with transfers of ownership, where the buyer is – typically – already in contact with mortgage credit institutions and banks regarding financing.

The replacements must take place in such a way that the necessary financial support is provided.

The state should therefore provide a subsidy of 25%, for example, and financing models must be developed, as described in the chapter “Installations, structures and buildings”.

If there is to be increased taxation on natural gas and heating oil, compensation must be in place in order to avoid social imbalance.

Also read: Carbon taxes and other sources of financing

Heat pumps can also contribute substantially in industry and agriculture. Both the Council on Climate Change and the Climate Partnership for Energy and Utilities find that there is considerable potential for reductions, because heat pumps can replace fossil fuels in processes that require low- and medium temperatures.

The total effect of this as, in addition to the replacement of natural gas with biogas, a transition of non-road transportation (agricultural machines, storage transport and construction machinery) and energy efficiency measures, is assessed to constitute 2.5m tonnes of CO2e.

The climate partnership estimates that the need for additional investments to carry this out amounts to DKK 19-25bn which is to be “financed by companies”. Meanwhile, FH proposes that the costs should not be carried by companies alone. This is due, in part, to the risk of carbon leakage.

A total of DKK 5bn should therefore be set aside for subsidies and the possibilities of co-funding through EU funds should be examined.

The funds can be put to use through a green transition fund, an extension and enlargement of the existing fund for energy efficiency measures in industry and construction and/or a facility under the Danish Energy Agency or the Innovation Fund Denmark or in accordance with the Norwegian model.

In Norway in 2007/2008, a tax on NOx emissions, which was a financial burden on companies and, thereby, represented an impediment to the desired NOx initiatives, was replaced by a foundation that funds NOx reductions instead.

The foundation has disbursed approximately DKK 4bn to more than 1,300 projects and has created a market pull for technologies amounting to more than DKK 10bn. 

In order to achieve the optimum effect, heat pumps must be put to optimum use in both households and businesses, and the installations must be of a high quality.

Therefore, the state’s renewable energy approval scheme must become mandatory. Alternatively, the support for heat pumps must be conditioned by installation performed by a renewable energy-approved company.

Electricity must also help us phase out fossil fuels in our cars. However, a precondition for this is the establishment of sufficient charging stations, both in urban and rural areas.

Furthermore, a national plan should be prepared. The plan should include reflections on a standardisation so that charging stations can be used for all types of cars and on adjustment of recharging to the amount of green electricity in the grid.

Electricity, district heating and hydrogen must be distributed

As the consumption of electricity is to be increased, as proposed here, there is a need to transport it from manufacturers to households, companies and charging stations. Therefore, the transmission- and distribution grid must be expanded

At the same time, even greater incentives should be offered to use electricity in the greenest form and where it is most abundant. It is also necessary to expand gas grids, district heating and hydrogen grids, among others, in order to underpin the development of Power-to-X.

Electricity production must be increased

In spite of energy efficiency measures, increased consumption of power and biogas represent a significant need for increasing electricity production further towards 2030 and 2050.

It is therefore not sufficient when, in the energy agreement from 2018, an expansion amounting to three offshore wind farms is planned, together with a previous proposal to establish two additional offshore wind farms.

All in all, FH proposes, in line with the Climate Partnership for Energy and Utilities, a fivefold increase of the existing offshore wind energy capacity and a quick elaboration of the plans for an energy island which is expected to produce a minimum of 10 GW. 

An energy island could be a lighthouse or flagship project, which combines the strategic commitments to Power-to-X, export potential and/or efforts to get the EU to raise its 2030 climate goals, as proposed by FH in the chapter on international initiatives.

At the same time, land-based wind energy production should be doubled and electricity production from solar cells should be multiplied. 

In connection with the expansion of solar cells, and for the purposes of involvement, possible synergies with noise reduction and land use, there should be a special focus on expansion of solar energy on household rooves, public buildings and other installations – for example in connection with buildings and roads under construction.

DKK 200m should be set aside for a demonstration programme and efforts should be launched to improve framework conditions and simplify rules. Among other things, regulatory barriers for municipalities to establish solar cells in line with regions and the state should be removed and the possibilities for leasing or renting solar cells should be improved.

In order to ensure transparency and predictability, a long-term plan for expansion should be prepared and more flexible regulation ensured in order to avoid drop-by-drop and slow processes. Offshore wind energy should be given priority in seascapes.

Predictable and continuous procurement will benefit the industry and the relevant occupational groups, among other things by ensuring a stable, positive impact on employment and more clarity regarding future education & training needs.

At the same time, it should be ensured that the regulation is in accordance with the 2030 and 2050 targets as well as relevant initiatives such as Power-to-X, higher ambitions in the field of climate change in the EU, exports and employment. It is important that the EU and other countries in the region are involved in this work.

The long-term expansion and adjustment of regulation should take local support into account.

In order to support local employment and development, requirements could be imposed in connection with tenders to establish syndicates which local businesses can join. The municipality of Norddjurds/Anholt has experienced good results with this approach.

Biogas and biomass

Biogas production must be tripled in order to replace coal, oil and gas in industry and heavy transport, among others, to reduce emissions in agriculture and contribute to the development of Power-to-X.

A national biogas strategy should be prepared which gives priority to the use of biogas so that it is only used if there are no alternatives (for example in high-temperature processes rather than in households) which underpins the expansion of gas infrastructure.

Furthermore, the strategy is to create greater certainty for investors, and it should also examine regulation and the need for support. 

Biomass, among other things from straw and wood pellets, has, to a large extent, replaced coal over the past few decades and has reduced emissions. However, there are doubts regarding whether biomass can be considered to be climate-neutral, especially when imported.

FH believes that a statutory framework for sustainable biomass, as proposed by the Climate Partnership for Energy and Utilities, is crucial to the overall credibility of our climate efforts – also if the initiative does not contribute to achieving Denmark’s own national 2030 goal.

New solutions are also needed

As a point of departure, in 2030, fossil fuels will still be used, for example in the production of cement and tricks and in trucks, airplanes, ships and construction machinery, combine harvesters, cutters etc. 

Supposedly, approximately 20 businesses have works and processes which require very high temperatures and therefore cannot be electrified, for example Aalborg Portland, which emits approximately 2m tonnes of CO2e a year.

Some of the fossil fuels can be replaced by biogas. However, others need to be displaced by new solutions such as Power-to-X, which FH proposes a strategic focus on.

The strategy behind this, which is described in the chapter on strategic commitments, must be underpinned by development funds, framework conditions and funding, including giving priority to beacons in research efforts, demonstration efforts, plants and flagship projects and, possibly, production support, if it turns out that it is not possible to create willingness-to-pay or sufficient demand in the transport sector.

The total financing need for these initiatives is assessed to constitute DKK 19.5bn. A large part of this can be financed by private investors and, possibly, the Danish Green Investment Fund

Meanwhile, the impact on employment is significant. In an example where funds are used for a 4.3 GW electrolysis system, it will create approximately 17,500 full-time equivalents.

Finally, a support scheme must be established for carbon capture, among other things in waste and biogas plants in heavy industry, in order to create a flagship project, support the strategic commitment to carbon capture and reduce emissions by 2030 with up to 2.5m tonnes CO2e.

The scheme should be devised in such a way that projects should incorporate possible utilisation (CCU), including synergies with Power-to-X.

Employment effects and financing needs

The proposed investments into the energy sector will be a motor for the Danish transition and employment towards 2030.

The total expansion of production and infrastructure, including the offshore wind farms etc. agreed in the energy agreement 2018, will not just drive the transition in many sectors, it will also create approximately 150,000-200,000 full-time equivalents. A 10 GW energy island can create a further 150,000 full-time equivalents

The investments that can already be implemented in the short term can help us emerge from the corona crisis. This is the case for, for example, the establishment of charging stations and expansion of infrastructure. If the crisis becomes lengthier, an expansion of the energy production can help with a recovery.

The need for additional investments is considerable. Based on assessments from, among others, the Climate Partnership for Energy and Utilities, it is estimated that they amount to DKK 250-350bn, see table 1.

. According to the calculations of the partnership, however, investments for expansions include over 1m electric cars and an electrification of the North Sea, which are not included in FH’s proposal.

On the other hand, FH’s proposal includes other proposals, for example more carbon capture and expansion of public transportation, some of which can entail an increased need for electricity.

Whether it would be possible to implement FH’s comprehensive proposal if the investments into expansion were scaled down can be examined.

However, a scaling down may not leave room for the exportation of green energy that FH proposes in connection with the international initiatives in order to support the transition in the EU, among others (see footnote no. 9).

In any case, the main part of the investments into the expansion of infrastructure and energy production implies a return which makes it attractive to investors.

For example, this applies to the offshore wind farms which, for their part, require DKK 85-105bn. Only a minor part of the investment would therefore need to come from the state.

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